From time to time, we at Mediolana get posed the seemingly eternal question: whither the economy? Sometimes the best course of action is to point the questioner in the direction of the ostensibly omnipresent Nouriel Roubini, that stalwart of the Stern School of Business at New York University and, like this company’s chief blogger, one of the very few commentators to note – during the ‘perpetual boom’ years of the mid-2000s – that all was not well with the global economy. Professor Roubini has recently composed a masterful analysis for Al Jazeera – one evincing his usual, tight prose – entitled Is capitalism doomed?
Roubini believes that ‘Great Depression 2.0’ may well be upon us shortly owing to a number of factors, including high oil prices and the psychological, ecological and physical devastation afflicting Japan. But the leitmotiv of his article is the central paradox confronting Western economies: the United States, the eurozone and the United Kingdom are all not merely experiencing slow or negative growth, but are seemingly bankrupt in terms of policy prescriptions; in Roubini’s words, ‘[Western policymakers] have run out of rabbits’. Particularly sobering in this respect is the fact that the American administration’s combination of a second round of quantitative easing and US$1trn in tax cuts – a desperate card to play in virtually any context – did not produce any significant economy-wide gains in the United States.
Extrapolating from Roubini’s perspicacity, Mediolana would proffer the following thoughts on the general direction of the global economy:
1. Western Stagnation. At least in the medium-term, the structural economic problems in the West are unlikely to be solved anytime soon. The eurozone crisis could conceivably dominate the EU for the first half of the current decade and beyond, and should Italy or Spain need bailing out then all bets are off concerning the ultimate status of the euro itself. The United States looks to be in an even worse predicament, with its transformation from hyperpower to fading world power well underway. In both regions, the awesome levels of debt now in play threaten to choke off any return to economic growth as we know it; sovereign governments are essentially being used as guarantors of the debts of the financial sector, leading one to question what form of capitalism is actually being practiced here.
2. Eastern Promise. Fast-emerging economies such as China, India, Turkey and Indonesia are posting hugely impressive growth rates – all four of these countries are scheduled to enjoy GDP growth of between approximately 6% and 10% this year – and have remained at least relatively immune from the contagion sweeping the EU and the United States, despite having intimate trade ties with these regions. This may change as the financial crisis in the West deepens, but emerging economies such as these boast massive potential for development of their own internal markets – a significant trump card in a period of pronounced global instability.
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